LEARNING CENTRE

After downturn, Islamic finance eyes profits, fintech: survey

02 May, 2018
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(Reuters) - Islamic banks and insurers are focusing on profitability and new financial products as the industry shifts away from years of containing the adverse impact of low oil prices, an industry body said on Wednesday.

The findings from surveys by the Bahrain-based General Council for Islamic Banks and Financial Institutions (CIBAFI) show a strong focus on fintech and digital transformation with more than 70 percent of the 103 managers surveyed viewing these as highly or extremely important in strategic decisions.

Islamic banks are launching technology departments and forming joint ventures with fintech firms, with nearly 45 percent of respondents planning to increase or launch digital branches in coming years.

“The Islamic financial industry, which has seen little change since 1975, is suddenly undergoing enormous shifts that can be challenging for Islamic finance institutions to mitigate,” CIBAFI said.

Islamic commercial banks are estimated to hold more than $1.3 trillion in assets globally, a sector considered systemically important in countries including Saudi Arabia, Qatar and Malaysia.

Technology-related risks have been steadily increasing and are now the biggest perceived risks, the survey showed.

This means Islamic banks must ramp up product innovation efforts over the next few years and tackle how new technologies adhere to Islamic finance principles, CIBAFI said.

This will see an influx of start-ups in the crowdfunding and payment space and drive legacy banks to transform operations, said one survey respondent from Bahrain.

“Crowdfunding, P2P and payments platforms will be a major focus in the medium term.”

Technologies that interface with customers were seen as the most important, with over a quarter of respondents indicating current or imminent use of automated financial advice tools such a robo-advisers.